John Thaler’s JAT Capital is one of those hedge funds that make bold bets on their high conviction ideas. This usually leads to strong returns but there were periods when this long/short equity fund significantly underperformed the market as well. For example JAT Capital’s worst performing year was in 2012 when it lost 19%. The fund managed to recover its losses with a 30% gain the following year. Overall, JAT Capital’s picks performed much better than an average hedge fund. The fund lost 6% in 2008 but this was much better than the performance of other hedge funds and the S&P 500 Index.
JAT Capital was one of the top performing hedge funds in 2011 with a 17% gain when most equity hedge funds had negative returns. In this article we examined the performance of JAT Capital’s long stock picks that were in its 13F portfolio at the end of 2014. The fund had 35 equity positions in stocks with at least $1 billion in market cap and these stocks dominated the S&P 500 ETF (SPY)’s 0.9% gain by delivering a total return of 8.6% through the end of March despite large losses in Yahoo! Inc. (NASDAQ:YHOO) and Tesla Motors Inc (NASDAQ:TSLA). Twitter Inc (NYSE:TWTR), Netflix, Inc. (NASDAQ:NFLX), and LinkedIn Corp (NYSE:LNKD) were among JAT’s best performing picks during the first quarter.
We track hedge funds like JAT Capital because historically their stock picks managed to generate alpha. In our backtests the most popular large cap stocks among hedge funds delivered an annualized alpha of less than 1 percentage point whereas hedge funds’ most popular small-cap picks achieved to deliver nearly 10 percentage points in annual alpha. Our back tests covered the 1999-2012 period. We have also been tracking the performance of these small-cap stocks since the end of August 2012. They returned a mind blowing 137% over this 31 month period and outperformed the S&P 500 index funds by more than 82 percentage points (read the details here).
The biggest winner in JAT Captial’s portfolio was Twitter Inc (NYSE:TWTR).As of the beginning of 2015, JAT Capital held 7.2 million shares of Twitter Inc (NYSE:TWTR) at an investment of $260 million. Twitter Inc (NYSE:TWTR) was almost 10% of the firm’s portfolio and has been making recent headlines as the social media company appears ready to surpass Yahoo! Inc. (NASDAQ:YHOO) in online display advertising. But some might be viewing these social media giants as becoming a little too pricey as Twitter surged 39% in the first quarter of 2015. JAT Capital began cutting its stake in Twitter Inc (NYSE:TWTR) by 28% in the last quarter of 2014. It will be interesting to see what he does this quarter when we get the next round of filings.
Next on JAT Capital’s list was Netflix, Inc. (NASDAQ:NFLX). At the beginning of 2015, JAT Capital held 258,000 shares at a value of $88 million. Thaler increased the firm’s position in Netflix, Inc. (NASDAQ:NFLX) in the last quarter of 2014 by 12% to a 3.38% position of the JAT Capital’s portfolio. Netflix, Inc. (NASDAQ:NFLX) surged 22% for the first quarter of 2015. Investors appear bullish on Netflix as the company appears to be transforming the space of digital tv.
Other major holders in Netflix are Julian Robertson’s Tiger Management and Philippe Laffront’s Coatue Management.
LinkedIn Corp (NYSE:LNKD) was another winner in JAT Capital’s portfolio. As of the beginning of 2015, JAT Capital disclosed a 200,000 share position in LinkedIn Corp (NYSE:LNKD) valuing the investment at $46 million. Thaler basically made no changes to the firm’s position in LinkedIn Corp (NYSE:LNKD) which represents a 1.77% in the firm’s equity holdings. The stock gained 8.7% for the first quarter of 2015. LinkedIn Corp (NYSE:LNKD) appeared on our list of hedge fund’s favorite stocks with 48 funds reporting ownership of $3.08 billion worth of the company’s stock, versus 45 funds with $2.75 billion worth of stock in the previous quarter.
The stocks that didn’t help his portfolio were Yahoo! Inc. (NASDAQ:YHOO) and Tesla Motors Inc (NASDAQ:TSLA). At the beginning of 2015, JAT Capital held 6.8 million shares of Yahoo! Inc. (NASDAQ:YHOO) at an investment of $345 million. It was the second largest position for JAT at 13.22% of the overall portfolio. Yahoo faces increased competition and will likely lose its position in online advertising to Twitter as mentioned earlier. Thaler, likely wary of this, began cutting the firm’s position in the stock by 23% in the last quarter of 2014. Yahoo fell 12% in the first quarter of 2015.
JAT Capital also took a significant hit with Tesla Motors Inc (NASDAQ:TSLA). In the beginning of the year the firm held 684,000 shares valued at $152 million. Tesla Motors Inc (NASDAQ:TSLA) accounts for 5.8% of JAT Capital’s portfolio but the firm’s position in the stock declined by 28% in the last quarter of 2014. Tesla Motors Inc (NASDAQ:TSLA) fell 15% for the first quarter of 2015 as investors remain skeptical of the company’s plans to transform the auto industry.
